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A year in pensions: DB transfers and beyond pension freedoms

Such has been the pace of change in pensions in recent years, 2017 will probably be viewed in hindsight as a quiet year.

There were not the cuts to the lifetime allowance, annual allowance, or the introduction of a new form of transitional protection we have seen in previous years.

We did, however, have the bizarre series of events where the money purchase annual allowance was slashed from £10,000 to £4,000, but the legislation underpinning it was only passed eight months later. Yet we still avoided widescale pension tax reform – like the kind we saw in 2015 with the introduction of pension freedoms.

But that doesn’t mean nothing happened. Instead, 2017 was a slow burner on a number of issues.

The backdrop to this year has been Brexit turmoil. It started as low mutterings, but as the year draws to a close, it has built to a crescendo. In a way, the most surprising element is the consistency of the markets, remaining solid while political chaos reigned. The market horror stories some had predicted have failed to materialise.

Automatic enrolment has begun to reach maturity, with the rollout extending to every employer. Now almost all employers have automatically enrolled their employees, even if it’s just one person. The next big challenges are the ratcheting up of contributions to 5 per cent from April, and to 8 per cent in April 2019.

Another theme of 2017 was defined benefit (DB) transfers. Concern about the increased number of enquiries and transfers has steadily gained momentum throughout the year. The FCA sent out several warning shots by publishing a couple of statements and the results of a small monitoring exercise highlighting the advice activity it was looking for. It also published a consultation on how to change the advice process for pension transfers. We should expect the FCA’s response early in 2018, and the introduction date for the new rules should be later in the year.

In the meantime, horror stories abounded about the stability of DB schemes, with the fall of BHS and the wholesale restructure of the Tata Steel pension schemes. There were also concerns about the advice some pension scheme members had received.

However, it’s important to remember the vast majority of advisers acting in this market are giving responsible advice and helping individuals understand their options and take the best course of action. Hopefully the FCA, The Pensions Regulator and the Department for Work and Pensions can work together next year to make sure the process works better for all involved.

Finally, 2017 may be remembered as the year the industry started to look beyond the face value of pension freedoms. The FCA’s retirement outcomes review gained speed and, together with the Work and Pensions select committee’s review, started to concentrate on the effect of the reforms for those who are unadvised. These reviews also began to consider the issues for those in drawdown without an adviser. Expect more activity on this area next year.